Ethereum will experience a radical change in the way it operates in the coming days: it will go from using proof of work to using proof of stake to validate transactions, which for some does not only mean a transformation in the network, but a threat to the Bitcoin network, the blockchain more popular.
Ethereum, the network of the second cryptocurrency with the highest market capitalization value, ether, will experience The Merge, the transition from validation through intense energy consumption to validation produced through the economic value that each participant puts in Game. The event in the network created by Vitalik Buterin will take place between September 14 and 15 next.
The change will take place throughout the Ethereum network, used to carry out economic transactions, participate in technological and decentralized finance (DeFi) projects and acquire Non-Fungible Tokens (NFT by its acronym in English).
In the words of Ben Edgington, a member of Consensys and one of the engineers who has been behind this change within the Ethereum network since 2014, what is about to happen is similar to the engine of a gasoline car being changed by an electric one with the car in motion.
In blockchain networks, validators are the nodes of the network that write down and validate each one of the transactions that are carried out in the chain of blocks, the great book of balances based on this technology.
In the case of networks that use the proof of work method, such as the Bitcoin network and still the Ethereum network, validators must solve mathematical problems that require the consumption of large amounts of energy to validate each transaction. In the networks that use the proof of stake method, the validators that have the most cryptocurrencies are the ones that can validate the transactions.
This is the change that Ethereum will experience: with The Mergethe more Ether a validator has, the easier it will be to target and validate a transaction, since those validators with a greater amount of this cryptocurrency in reserve are the ones who are most interested in the network surviving and thus preserving the value they have put into play.
In interview with The EconomistEdgington talks about what will happen when The Merge takes place and how this will impact the cryptocurrency ecosystem on a global scale.
—Could you explain to us what The Merge is in simple terms?
—Ethereum, this blockchain technology where we can transact with each other and do decentralized finance, create NFTs and so on, has been running on proof of work for the last seven years. Proof-of-work is the technology used to secure the network and defend it from attacks. It is the same technology that Bitcoin uses and that we have been successfully using on Ethereum for seven years. But that’s going to change.
It has always been a plan of Ethereum to move to a new technology called proof of stake. And one of the main reasons for this is that proof of work is very intensive for the environment. It uses a large amount of power by design. Basically, the way to secure the network is to burn electricity and thus the miner who can burn the most energy wins. Proof of stake or consensus (proof of stake) is a very different technology and is secured by the economic value of the assets that the participants would put at risk in the network.
So we’ve always had this plan to go from proof of work to proof of stake for a number of reasons. Firstly, because it is much more environmentally friendly: it uses perhaps less than a thousandth of the energy of proof of work. But also because we think it’s more secure as a technology, it just has better security properties and thirdly because we have to pay less for the same level of security. Ethereum has been running on proof of work. We want to move to proof of stake and that’s what happens in the merger (The Merge).
—Why has The Merge taken so long to produce and why have there been so many delays over the years?
—We never put a date on it, so we always like to say that it has never been delayed, because we never committed to a date. Now we have committed to a date. So if we don’t do it now, you can say so.
But you’re right, it’s taken a long time. At Ethereum we started talking about proof of stake in 2014, eight years ago, and it has always been the plan. Part of the challenge has been that we had to invent this technology from scratch at the time. There were no proof-of-stake networks. Now more recently there have been a few and, you know, most of the new networks use proof of stake because it’s just a better technology, but with Ethereum we have a complication: we have an existing network and we have to transfer it to proof of stake. So we’ve had to devise a way to take all of the existing value, hundreds of billions of dollars of ether value, plus all of the value of decentralized finance (DeFi) plus NFTs from around the world and, without disrupting the network, move it to proof of stake. This is much more difficult than starting from a clean sheet of paper.
This is only the first step. It feels like the end of a long journey, right? But it’s actually the start of an even bigger journey for Ethereum, and we have big ambitions for this network, it’s always evolving, always improving, always moving forward. So there is much more to come.
—There is a lot of discussion about security in proof of stake and proof of work. Many people in the cryptocurrency community, especially Bitcoin maximalists, think that proof-of-stake does not provide the security that proof-of-work does. What do you think of this idea?
“I think they are wrong. You’re welcome to come and try to attack Ethereum if you want, but what I want to say about this is that we can put a cost, we can very easily quantify the cost of attacking the Ethereum network under proof of stake and it’s designed that way.
If an attacker wants to change the history of the blockchain of Ethereum, then we can prove that one third of all ether will be burned and destroyed as punishment for the attacker. So if we currently have $20 billion of ether, then an attacker would have to burn about $7 billion to attack the chain, to change the history of the chain, and that’s an automatic function of the protocol. It will detect the attack and automatically identify the attacker and cut him off from the network.
Proof of work does not have a similar mechanism. You have no way of punishing an attacker, and in fact, kind of a dirty secret of proof-of-work is that a successful attack at 51% of the chain is actually profitable, because if the attackers attempt fails, all they have lost is the cost of the energy they burned and they can try again and then they can try again. Under proof of stake we burn all your stake, so you have no way to try again. These are a couple of points why we think proof of stake is more secure.
Do you think proof of stake will replace proof of work?
-I hope so. My story is that I discovered Ethereum when he was working in business. He wore a suit and tie for a living and he was, you know, in management. I came across Ethereum, read about proof of work and thought, ‘Well, it’s kind of smart, but it’s also kind of dumb, you know, it just burns a lot of energy and it’s not doing anything.’
So I read about proof of stake and that’s when I thought it was brilliant and what a great idea. From that moment I understood that Ethereum was going to go to proof of stake. For me that was the moment of enlightenment. I said to myself, ‘This is what I want to work on.’
I think we’re showing that proof of work is a legacy technology. I mean is it really the gasoline engine or the steam engine. It was brilliant in its time, 12 years ago, when Bitcoin was first working. But now it is an obsolete technology. I would love to see Bitcoin and other proof-of-work networks change, but I think Bitcoin is getting more and more entrenched in proof-of-work. You know, I think they’re getting more and more defensive about this. I fear that will never change for Bitcoin and I suspect that eventually that will make Bitcoin irrelevant.
rodrigo.riquelme@eleconomista.mx
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